Why did some cities suffer more from ’08 financial crisis than others?

It’s been called the biggest economic crisis since the 1929-39 Great Depression.

Yes, it’s true that there has been a sharp rise in the national unemployment rate since the frightening Fall of 2008, when the sub-prime mortgage crisis evolved into a serious threat to the solvency of the banks to which millions of people had entrusted their savings.

Yet the crisis seemed to by-pass Winnipeg.

In the midst of the “greatest crisis since the Depression”, the city still boasts a better unemployment rate today than it did in the mid-to-late ’80s boom (when unemployment was in the 8% range), and remains far below what we suffered through in 1992-94, when Winnipeg was afflicted with three consecutive awful years of 10-11 percent unemployment rates.

Winnipeg's unemployment rate since the mid-'80s (© Centre for Urban Economics and Real Estate, Univ. of B.C.)

Other Canadian cities haven’t been so lucky.

The following chart shows how the median total family income changed in 27 metropolitan areas across the country (28 if you count the Ontario and Quebec parts of metropolitan Ottawa-Gatineau separately, as Statistics Canada does below). In 13 metro areas, the typical family was worse off in 2009 than in 2008.

Percentage change in median total family income between 2008 and 2009 (Source: Statistics Canada)

Why might some cities have been luckier than others?

I revisited an old data file I still have on my hard drive, containing as much data about 25 Canadian cities as I could download from Statistics Canada’s 2006 Census Community Profiles site.

When I entered the 2008-09 percentage change in each community’s median family income, and looked for correlations, an interesting picture began to emerge.*

• The “wealthier” cities took the biggest hit. The higher a city’s typical family income was back in 2005, the more likely that city was to be hit hard by events in 2008-09. Boomtowns such as Calgary and Edmonton, and “auto towns” like Windsor and Oshawa, saw family incomes drop between 2008 and 2009. Cities that were less affluent to start with came through the crisis in better shape.
   
  As higher-income cities tended to have more expensive housing markets, the 2008-09 crisis thus tended to be cruelest to those with the highest monthly mortgage and rental payments. There were also signs that the faster a city’s population grew between 2001 and 2006, the bigger the impact of the crisis.
   
  Note that this should not be taken as a defence of anemic income growth, as even those cities that took the hardest hit remained more affluent afterwards.

• Cities with larger immigrant populations tended to take a harder hit.This probably reflects the tendency for immigrants to flock to cities which are experiencing booms, and to be at a higher risk of being laid off when the economy goes sour.
   
  While continued immigration into Winnipeg from around the world continues to be a good thing — isolated communities in particular need an infusion of new people and new perspectives from time to time — this should serve as a warning that we should use the good times, while they last, to prepare newcomers now so that they have the skills and qualifications to survive a downturn.

• Health care jobs as a shock absorber? Cities with larger numbers of health care workers as a percentage of the local workforce tended to come through the 2008-09 crisis in better shape. Many of these jobs are secure right now thanks to an aging population, and well-paying to boot, so it makes sense that the larger their share of the workforce, the better the community is able to withstand economic shocks.
   
  It’s also worth noting that communities with larger numbers of people employed in “social science, education, government service and religion” — a number of these being university towns and/or smaller provincial capitals — seemed to come through the 2008-09 crisis in better shape, though the correlation is just shy of the cut-off I’ve used here.

* – Pearson correlations of 0.500/-0.500 or stronger. Based on 24 of the 25 cities in my data file, thanks to Statistics Canada’s inconvenient splitting of metropolitan Ottawa-Gatineau into two parts.

 

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Australia, like Canada, has so far come through the global economic crises in fairly good shape — which means that Australians remain prodigious travelers. One of them is the Sydney Morning Herald‘s Ben Groundwater who, with little fanfare, talked his way past border security — suspicious as they are of Australians going to Winnipeg, of all places, on holiday — and dropped in to take a look at our city through a fresh set of eyes.

His candid observations for the benefit of his readers back home in Australia, from the “ghost town” feel of Winnipeg’s strangely empty streets to Osborne Village’s “cool” artistic vibe, is worth reading if you’re interested in getting a grasp on how outsiders view our city and what the “ideal” Winnipeg should be like. (A tip of the hat to James Hope Howard of Slurpees and Murder for bringing this to my attention.)

Can governments spend their way to a higher birth rate?

The warning was stark. “Like many other countries, Canada does not have a sustainable fiscal structure,” Parliamentary Budget Officer Kevin Page wrote in an e-mail this week. “Policy makers will need to address the aging demographic issue. We feel it should be part of the discussion leading up to the 2012 budget.”

Canada’s population is aging. In 1996, there was 1.2 Winnipeggers under the age of 20 for each Winnipegger over the age of 55.

By 2006, the situation had begun to reverse, with the city having 1.03 over-55s for each Winnipegger under the age of 20.

And yet Winnipeg, the median (or “typical”) resident of which was 38 years old in 2006, is one of Canada’s younger cities, especially in comparison to some blue-collar Ontario and Quebec cities, where the “typical” resident is (or will soon be) 45 years old.

An aging population has a real impact on a city. Aging communities tend to have lower typical incomes, greater dependency on government income supports, more sluggish real estate markets and low-wage-low-skill job markets. It’s a toxic soup that leaves a feeling of doom hanging over the community.

Many places, like Manitoba, have put an effort into attracting immigrants to prevent communities from aging too rapidly as the “Baby Boomers” retire from the workforce.

By many accounts, this has worked fairly well in Manitoba, where many people are the children, grandchildren or great-grandchildren of immigrants, and thus sympathetic to newcomers.

There will always be those, however, who will bemoan the fact that Canadians are not having enough babies. If only Canadians got busy and produced more of their own children, they say, we wouldn’t need so many immigrants.

Never mind the fact that immigrants have beneficial economic effects and, as this blog pointed out some time ago, often bring with them a culture that values education — a cultural infusion we very much need in Manitoba.

Indeed, there are governments that have tried to use subsidies and tax credits to boost birth rates. How have those efforts worked out?

• A 2003 study of changes made to France’s Parental Education Allowance in 1994 found that government financial incentives played a role in encouraging people to have a first child. However, these incentives were largely ineffective at convincing people to have anything more than a second child.
• In May 2004, Australian finance minister Peter Costello urged his compatriots to get cuddling and produce “one for mum, one for dad, and one for your country”, offering the parents of newborns a $3,000 bonus for their efforts. A paper produced by researchers at the Royal Melbourne Institute of Technology University in 2010 found that the bonus had a ”positive effect on fertility rates”, leading to about an additional 119,000 births. But it also concluded, however, that the program cost about $39,000 per newborn to run, and has not increased fertility rates to levels needed to replace the aging. Furthermore, an effort to control costs by means-testing recipients is expected to reduce the program’s impact.
• A 2009 Princeton University study of the impact of the incentives introduced by Quebec in the ’80s to boost birth rates found mixed results. On the positive side, it found a 1.72 percent increase in fertility as a result of these incentives. On the down side, it found that these incentives took women out of the work force — and subsequently reduced their average earnings — and cost nearly $400,000 in 1986 dollars ($738,000 in 2011 dollars) per newborn.

Many studies have also cautioned that birth rates can also change over time due to other factors, such as immigration patterns and economic security.

In the final analysis, it appears as though it is possible for a government to spend its way to a higher birth rate — but at a very high price per child, and not to a level sufficient to reduce the need for immigrants.

So, the next time you see a new Canadian, thank them for joining us here in Canada. They’re helping the economy at a much more reasonable price than the alternatives would cost.

What makes a city worth moving to?

Moving, in search of a better life

Election campaigns nowadays are too often dominated by wedge issues and efforts to make mountains out of molehills, but there are some encouraging signs that more substantial quality-of-life issues are wiggling their way into the nascent Manitoba provincial election campaign.

Take for example an article by Derek Holtom which appeared in the Winnipeg Free Press recently, asking why more people move away from Manitoba to other provinces than move here.

Between 2007 and 2010, 12,655 people left Manitoba for other provinces. During the same time frame, Saskatchewan added 14,393 from other provinces. And according to a report done by TD Economics, the trend appears set to continue. Manitoba is projected to lose another 6,750 to other provinces in 2011 and 2012, while Saskatchewan is projected to add another 7,434. Alberta and British Columbia are also projected to add more people from other parts of Canada, making Manitoba a big loser in terms of interprovincial migration in Western Canada.

Of course, Manitoba has done exceedingly well in terms of immigration. It does so well, in fact, that the province continues to grow despite interprovincial migration losses. Last year Manitoba welcomed 15,805 immigrants, more than making up for those who left between 2007 and 2010.

But the question remains, why are people leaving? Some argue taxes are an issue. Manitoba tries to position itself as a more affordable place to live with a lower cost of living. But Saskatchewan’s lower taxes and higher wages cannot be ignored. For example, Saskatchewan just raised their personal income tax exemption by $1,000 to $14,535. Manitoba just increased their exemption by $250 — to $8,384. That’s a stark difference when it comes to paying your taxes in May.

So why do people leave?

Manitoba is hardly alone in pondering this question. Statistics Canada data shows that eight out of 13 provinces and territories saw more people move out to other parts of Canada than move in in 2008-09. The only net gainers were Newfoundland and Labrador, Saskatchewan, Alberta, British Columbia and the Yukon Territory.

And Manitoba, where 92 domestic migrants moved in for every 100 who moved out, was hardly the worst province in this regard.  Only 72 people moved into Quebec for every 100 who moved out to other parts of Canada, suggesting that the beauty of la belle province doesn’t make up for a perceived lack of opportunity.

The Northwest Territories also suffered a major shortfall, attracting only 74 domestic newcomers for every 100 who moved out.

Even Ontario, the traditional economic powerhouse of the Canadian economy and still a popular destination for immigrants, seemed to lose a lot of lustre in the eyes of Canadians, attracting only 80 people from other parts of Canada for every 100 who moved out.

To answer the question of what drives people to move from place to place around Canada, I took a second look at some data I had on hand with more than 90 pieces of data on each of 25 Canadian cities. Most of this data came from the 2006 census.

Specifically, I looked at how each piece of data correlated with the proportion of city residents who had moved in from out of province within the past five years. The further the score was from zero on a scale of -1 to +1, the stronger the relationship between the two factors.

An interesting picture began to emerge, as shown below. Canadians, it seems, are drawn to the coasts, or at least away from the heartland where the winters are the harshest.

Not surprisingly, Canadians also tend to move to places that have better job prospects, hence a strong relationship between a city’s employment rate and the concentration of recent out-of-province newcomers living there. Similarly, places with high levels of dependency on government income support tend to have little attraction to other Canadians.

(* – All factors above are statistically significant. Click to enlarge.)

But the types of jobs that a city offers also has the power to attract or repel people. Cities with larger business services and construction sectors tend to draw more people, as do those with jobs in the sciences, management, business, finance and administration. Manufacturing-dominated towns, however, were seen as distinctly unattractive places to live.

Cities with larger numbers of secondary and post-secondary graduates also tend to be more attractive. Yes, it’s true that those who are already well-educated tend to be more mobile than those who are not, but a city also needs a well-educated local population before it can start drawing similarly well-educated migrants from elsewhere.

Finally, there are signs that lifestyle plays a role. Cities where it’s possible and practical to walk or ride a bike to work have an advantage over more car-dependent cities; and cities with lower reported stress levels tend to be more attractive than higher-stress cities.

Median pre-tax and after-tax family incomes showed some signs of influence, but there was little to suggest that the difference between the two plays much of a role in choosing a place to live.

Housing costs were also neither a distinct advantage nor liability.

So the next time you hear Manitoba’s interprovincial migration rate being discussed in the media, remember this: it’s about climate, it’s about finding work, and it’s about lifestyle. And that Manitoba is neither alone in worrying about people moving away, nor is it the hardest-hit province in this regard.

Manufacturing dissatisfaction

I happened to be having a look recently at a Statistics Canada release on how many hours people put into their jobs per week when it occurred to me to check to see if they had ever done any research on job satisfaction.

They had — well, almost. Back in October 2006, Statistics Canada had released a report on job dissatisfaction, based on 2002 data,  as part of its Health Reports series.

While large majorities of people in all occupations reported being satisfied with their jobs, there were several occupations where job dissatisfaction was higher than the national 9% average. These were:

• Processing, Manufacturing and Utilities: 17% dissatisfied

• Sales and Service Occupations: 11% dissatisfied

• Administrative, Clerical and Financial Occupations: 11% dissatisfied

The relatively high level of job dissatisfaction among people in processing, manufacturing and utilities seemed rather intriguing. Regular readers of this blog might recall the observation last December that a city’s ability to attract and retain people from out of province was inversely correlated to the size of its manufacturing sector — i.e., that manufacturing tended to be a people-repellent, possibly due to the perception that manufacturing jobs are neither interesting nor lucrative nor secure.

At the opposite end of the scale, there was lower than average job dissatisfaction expressed by people employed in:

• Farming, Forestry, Fishing and Mining: 4% dissatisfied (albeit with a data reliability caution)

• Professional careers: 5% dissatisfied

• Management: 6%

Technologists (7%) and people in the trades, transportation or equipment-operating professions (8%) tended to be about average in terms of job dissatisfaction.

Shift workers, low-income earners and young adults aged 18-24 also tended to be above average in terms of job dissatisfaction, while the self-employed, those with personal incomes over $40,000 or aged 40 and over were less likely than average to gripe.

As for what I was originally looking at — hours of work by occupation — it turned out that there weren’t many differences to report: regardless of industry, salaried workers typically averaged 35-40 hours per week, with mining and quarrying having the longest average work week in March 2011 (40.7 hours/week)  and educational services having the shortest average week (31.8 hours/week, possibly excluding take-home work).

* – This is just a hunch, but by looking at the types of careers that had relatively low and high levels of disgruntlement, it seemed as though having interesting work and a sense of control over the day might be vital to job satisfaction — and that having work that is dull, repetitive or which puts a person in a reactive position where they have little control can be detrimental to job satisfaction. Again, just a hunch.

Airline industry grows up

One day in 1958, someone in the sales department of SAS, the state airline jointly owned by the governments of Norway, Sweden and Denmark, came up with what he thought would be a clever line to attract more high-fare business travelers to the airline.

“On our planes you won’t find rubbery indigestibles wrapped in cellophane,” the unknown author wrote in reference to SAS’s supposedly tastier sandwiches in a sales letter to prospective clients.

Eventually a copy of the letter ended up in the hands of Trans World Airlines (TWA), a major U.S.-based competitor of SAS’s on the North Atlantic routes — and it was SAS that ended up with a very expensive case of indigestion.

Trans World complained to the International Air Transport Association (IATA), the global regulatory body for the world’s airlines, about SAS’s boastful letter. IATA regulated not just where airlines could fly to and how much they could charge; they even regulated in-flight service.

The dispute between SAS and TWA, and complaints from Pan American about the large sandwiches being served by four of its European rivals, are now remembered as the “Great Sandwich War” — and still sometimes recalled by historians as one of the absurdities of the airline industry’s pre-deregulation era.

The result was a two-day IATA conference in London that deemed that member airlines’ Economy Class sandwiches must be cold, made largely of bread, unadorned, self-contained and not filled with anything too fancy, such as lobster or caviar.

And SAS, was slapped with a $20,000 fine for slurring its competitors — equivalent to more than $150,000 in 2010 dollars.

It was TWA’s turn to be the aggressor in the 1965 Movie War, when other airlines complained that the U.S. airline’s expensive new in-flight movie system gave it an unfair advantage. After a short ban on movies, the dispute was resolved in 1966 when IATA ruled that in-flight movies were acceptable as long as passengers had to pay $2.50 U.S. (equivalent to nearly $17 today) to rent the required headsets.

The industry’s childish antics would continue for more than a decade more. By the late ’70s, however, it was time for a change.

Governments that had been flush with cash during the post-war booms of the ’50s and ’60s found themselves forced on to austerity budgets in the ’70s by weak economic growth and soaring inflation. The cash infusions required to help government-owned airlines replace the Boeing 707s and DC-8s that were nearing the end of their service lives, and to subsidize unprofitable routes for political reasons, were unwelcome expenses that governments were eager to be rid of.

On top of that, the public was clamouring for lower fares.

That set the stage for governments to get out of the airline business by deregulating the industry, privatizing government-owned airlines and signing ”open skies” treaties with other governments. Once the U.S. deregulated its airline industry in 1978, it was only a matter of time before Canada followed course — which we did in the ’80s.

That set loose a 30-year hurricane of changes — mergers, fare wars, start-ups, bankruptcies, new job opportunities at some times and massive layoffs at others.

The toll could be seen by looking at the names of the airlines that served Winnipeg in 1978, the year that deregulation began in the U.S.: Air Canada, CP Air, Transair, Wardair, North Central Airlines, Northwest Orient and Frontier Airlines.

By 1990, all but Air Canada and Northwest had disappeared through merger or bankruptcy.

There were years of chaos left to go. Various newly formed airlines came and went at Winnipeg International Airport throughout the ’90s and 2000s: Royal Airlines, Greyhound Air, Vistajet, Canada 3000, Jetsgo and Zoom, just to name a few.

Fifteen years ago this month, on Feb. 29, 1996, a quirky Calgary-based startup called WestJet took to the skies over Winnipeg for the first time. Many (myself included) figured that it too would eventually fall victim to industry carnage.

Despite a rocky start, WestJet proved us doubters wrong through a combination of skillful management and good luck. By 2010, it was approximately the same size as the former Canadian Airlines International in terms of the number of passenger-miles flown and the size of its fleet.

As WestJet’s 15th anniversary approaches, a strange sense of normalcy has settled in at Winnipeg Airport.

WestJet itself has shed many of the quirky attributes of its early days, such as the singing flight attendants and the pass-the-toilet-paper-roll games, though the flight attendants’ name tags still have smiley faces on them. Now it does more “middle-aged airline” things, such as signing interline and code-sharing agreements with Delta and Air France. (Will membership in the SkyTeam alliance be next?)

Air Canada will always get its share of barbs as the country’s biggest airline. But it is a profitable airline, as its 2010 net income of $107 million suggests, and has had some success in convincing U.S. travelers to connect through Canada instead of through U.S. hubs on their way to international destinations, as the Winnipeg Free Press reported a few days ago.

And despite ongoing economic trouble in the U.S., both Delta and United-Continental announced today that they were profitable in 2010 and would be paying out profit-sharing bonuses to their employees.

After 30 years of post-deregulation turmoil, which followed 30 years of pre-deregulation bunfights over trivial issues like sandwich toppings, the airline industry seems to have finally found some degree of stability. It has finally grown up.

The trick now will be to make the stability last.

Was airline deregulation good or bad in your opinion? Share your thoughts below.

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On a different note, most of us born-and-bred Manitobans were quite pleased to see headlines such as “Warm weekend weather” in the Winnipeg Sun and “A few more days of warmer weather in store‎” in the Winnipeg Free Press. But our pleasant mid-winter respite from the usual brutal cold can be a newcomer’s shocking introduction to what we consider “warm” around here, as I learned this weekend.

“Please tell me they are joking when they say this is a warm day in Winnipeg,” a friendly recent newcomer from the U.K. begged me this weekend. I reassured him that it wasn’t actually warm, but still very mild for this time of year, hoping that it would ease his shock at learning that what would be called “extreme cold” in his homeland is sometimes called “warm” here.

So, if there are any meteorologists or other weatherpeople reading this, now you know: be careful how you use the word “warm” at this time of year, as it’s giving some of our new neighbours from abroad a dreadful fright.

 

Immigrants bring culture change for the better

To say that immigration is important to Manitoba’s population growth is almost an understatement. Of the 21,170 people who moved into Manitoba during the 12 months leading up to the 2006 Census, 46 percent were from abroad — giving us the fourth-highest dependence on immigration as a source of newcomers after Ontario (70%), Quebec (68%) and B.C. (52%).

While it might not be a hot destination in the minds of other Canadians, with Manitoba ranking only 11th out of 13 provinces and territories in the 2006 Census in terms of incoming domestic migrants per capita, for many international newcomers a move to Manitoba can be the first step to a better life.

For immigrants from Colombia and Mexico, it means an escape from the violence that plagues those countries, in comparison to which life in the North End might seem like a walk in the park. Even for immigrants from more prosperous England, where the average price of a flat (i.e., condo) in Greater London was a stunning £351,655 ($558,400 Cdn.) in mid-2010, a move to Manitoba could mean the opportunity to own a spacious home with a yard — a £827,477 ($1.3 million Cdn.) luxury beyond the reach of the London middle class.

The drive to attract immigrants to Manitoba might appear on the surface to be part of an effort to ease the effect of upcoming “baby boomer” retirements that, if left unchecked, could play havoc with the province’s finances by simultaneously slashing income tax revenues at a time when health and social service costs are rising.

But a desirable side effect could be to change the province’s culture for the better.

Manitoba has long struggled with the lack of an “education culture”. In the 2006 Census, only 56 percent of Manitoba’s 25-34 year olds had any form of post-secondary education, ranking us 12th out of the 13 provinces and territories, with only Nunavut having fewer well-educated young people per capita.

In terms of high school dropouts, Manitoba’s 16 percent of 25-34 year olds without a high school diploma ranked us #3 after the Northwest Territories (22%) and Nunavut (46%).

Needless to say, the economic effects were not good. Even though 2003 statistics showed that Ontarians on average worked just 1.6 percent more hours per job than Manitobans, and even Albertans only worked 5.3 percent more hours than their Manitoba counterparts, output per hour worked in Manitoba was the third-lowest in the country, ahead of New Brunswick and P.E.I.

Likewise, per capita spending on research and development — a strong driver of economic growth, but reliant on a well-educated population — had us in 8th place among the 10 provinces in 2008, again just ahead of P.E.I. and New Brunswick.

Manitoba’s ambitions — I hope we have those ambitions — to play a more meaningful role in the Canadian economy than merely as an exporter of talent to Alberta, Ontario and B.C. requires us to develop a culture of education.

A continuing influx of immigrants is one of our best hopes of that.

A 2008 Statistics Canada analysis based on their Ethnic Diversity Study found that the 25-to-34 year old children of immigrant parents were significantly more likely to have completed university than the children of Canadian-born parents — 38 percent among the former group, 28 percent among the latter.

Immigrant groups that brought a strong culture of education to our shores included those from China (70% of whose children went on to become university graduates), India (65%), Africa (56%), “other” Asian countries (52%), “other” European countries (45%) and the U.K. (38%).

If there’s one thing Manitoba needs, it is a larger number of parents committed to steering their children toward whichever form of post-secondary education makes best use of their talents.

While it should in no way let Manitoba-born parents off the hook, continuing to welcome large numbers of immigrants to Manitoba — as many as we can reasonably handle — will be necessary to accomplish the culture change we need to not just survive, but thrive.

Dear Governments: Before making any new financial commitments to a new stadium…

…Please ensure that you re-read and understand this roundup of what the research has to say on the public funding of new stadiums and sports facilities. Some of the key findings included:
 

• Governments “realize only a small, if any, direct financial return—which in any case is dwarfed by the debt service, maintenance, sanitation, security, and opportunity costs incurred.” (Seigfried and Zimbalist, 2002)

 

• “[S]tadiums, arenas and sports franchises have no consistent, positive impact on jobs, income, and tax revenues” and subsidies are “difficult to justify” (Coates and Humphreys, 2008)

 

• [U]sing public funds to subsidize stadium construction limits the availability of funds for essentials such as education, police, streets and water.” (Asselin, 2006)

Secrecy in government costly for all

If anything inflamed the controversy surrounding the City of Winnipeg’s plans to hire Veolia Canada to upgrade and help run two city sewage treatment plants, it was these words reported by the Winnipeg Free Press on May 20, 2010:

But Mayor Sam Katz and his executive policy committee argued the city never makes the details of any contract public and an army of lawyers, accountants and engineers within the city and in the private sector have vetted the deal.

“Why don’t you have faith in our staff who have done their due diligence?” Katz asked opposition councillors. “At some point in time you gotta believe in the people who may have a little more knowledge than you.”

If anyone can go online to read the details of a purchase order contract for $52.9 million Aus. of computer hardware, software and services by a state government agency in Australia, then why should similar disclosure continue to “never” be done in Winnipeg?

It’s not as if Australia — one of the world’s best-managed countries, as this blog pointed out previously — has suffered for its openness.

Or ask yourself this: Can Winnipeg claim to be one of Canada’s best-run cities under current practices?

In fact, increasing openness, accessibility and transparency in public life is one of the best things that a government can do to improve the public’s economic well-being and even to help balance its books.

Secrecy, by comparison, is a stealthy pickpocket that leaves citizens worse off and decreases the odds of a government ever balancing its books.

The first chart below shows the substantial relationship between openness in government and gross domestic product per capita among member-states of the OECD.* The higher a country placed in the chart, the better it performed in Transparency International’s Corruption Perceptions Index, an annual assessment of how well countries have done in living up to the ideal that the public has the right to know what their government is up to and that government exists for the equal benefit of all.

The second chart below is based on the relationship between how each country performed* in the Corruption Perceptions Index and the gap between general government revenues and expenditures. As shown, the more open a government was, the more likely it was to balance its books. Again, it’s a solid relationship.

It suggests that the winners of this week’s Mayoral and City Council contests should resolve to spend the next four years working on openness in government if they wish to be remembered as the council that left its citizens and the city’s finances in better shape than they found them.

One step might be to follow the lead established by the government of the Australian state of Victoria, which requires that all contracts valued at over $100,000 Aus. ($101,000 Cdn.) be publicly disclosed.

* – Outliers and countries with incomplete data excluded.

Sources: Transparency International Corruption Perceptions Index 2009 and OECD in Figures, 2009 edition

Update, Oct. 26: Today, Transparency International released the Corruption Perceptions Index 2010. Canada was the 6th least corrupt country in the world, with a score of 8.9 out of 10. The Top 5 were: Denmark, New Zealand and Singapore (tied at 9.3), Finland and Sweden (tied at 9.2).

Skepticism justified on government spending for arenas, stadiums and pro sports franchises

The proposal to spend $175 million or more of taxpayers’ money on a new arena in Quebec City has created a new controversy for a federal Conservative government that has had its fair share of troubles over the course of the past year.

It’s an emotional issue to be sure.  Some Conservatives hope that it will help the party hold on to valuable Quebec seats in the next election. For Quebec City residents, the proposal reignites the dream of the NHL eventually returning to their hometown, while for western Canadians it conjures up more troubling memories of a time when Quebec was seen as the beneficiary of federal favouritism.

If Quebec City succeeds in winning federal backing for a new arena, it could increase pressure on Ottawa to spend more money to help draw the NHL back to Winnipeg and to build new arenas in Edmonton and Calgary. It could all get very expensive, very quickly.

Are public subsidies for professional sports facilities and teams money well spent, or a drain on the public treasury that helps governments win votes in a way that a similar commitment to education and research and development could never hope to do?

Let’s see what those who have done the research have to say:

• Charles Santo of Portland State University’s School of Urban Studies and Planning noted in a 2005 article for the Journal of Urban Affairs that “context matters” in determining whether or not public subsidies for sports facilities have had a positive effect on a community.  He noted that “stadiums set in downtown locations are more likely to generate ancillary spending before and after games than their suburban counterparts” and that “a new team might also generate some economic benefit… if it causes local residents to spend money inside the local economy that they would have otherwise spent elsewhere.”

 

• Economists John Siegfried of Vanderbilt University and Andrew Zimbalist of Smith College noted in a 2002 article for the Journal of Sports Economics that “there are few empirical conclusions on which a broad array of economists agree so strongly as the absence of local economic development effects of sports facilities” and that when governments help finance new professional sports facilities, they “realize only a small, if any, direct financial return—which in any case is dwarfed by the debt service, maintenance, sanitation, security, and opportunity costs incurred.”

 

• Siegfried and Zimbalist also noted that the professional sports teams that reside in these new stadiums, arenas and ballparks can drain revenue away from other parts of the local economy:

 

“Most consumers have a relatively inflexible leisure budget. The more time and money that is spent on a sports team, the less is available for golf, bowling, amusement parks, restaurants, theater, or concert halls. And although some expenditures on local sports teams substitute for imports (e.g., replace out-of-town travel), a lot also replace alternative leisure expenditures in the community where the team is located. The net effect of a new team or stadium on consumption in the team’s local community is likely to be close to zero, although sports teams cause a substantial rearrangement of leisure spending within the local area (Coates & Humphreys, 2000).”

• Economists Dennis Coates of the University of Maryland and Brad Humphreys of the University of Alberta, in a 2008 working paper, strongly criticized the assumption that public financing of professional sports facilities leads to economic development. While leaving the door open for the possibility of intangible benefits, they wrote that economists are nearly unanimous that “stadiums, arenas and sports franchises have no consistent, positive impact on jobs, income, and tax revenues” and that subsidies to build and operate professional sports facilities are “difficult to justify”.

 

• Peter Asselin, in another review of the evidence for a 2006 Rutgers Journal of Law and Urban Policy article on the effects of public financing of pro sports facilities in Philadelphia, found that the politicians are among the biggest beneficiaries of new sports facilities:

 

“Local politicians who either seek accolades for enticing new teams to their cities or seek to avoid the stigma of losing a team on their watch argue that new stadia result in local economic growth. The citizens are serenaded with claims that building a stadium will create jobs, increase tax revenue, attract business, and improve tourism. The public subsidy, they are told, will pay for itself.”

“However, the majority of research indicates that the presence of new stadia and teams have no significant economic impact. Most independent economists agree that the number of jobs created after the construction phase has ended is minimal, and these jobs are seasonal, unskilled, and low paying. Publicly funded stadia also come at a great cost to both local and federal taxpayers. Moreover, spending at the stadium and in the area is likely shifted from other forms of local entertainment and therefore does not create a net benefit. Lastly, using public funds to subsidize stadium construction limits the availability of funds for essentials such as education, police, streets and water.”

 
Remember those points the next time the issue of public funding for arenas, stadiums and sports teams comes up in the news.

Talking about the P-word

Higher productivity doesn't mean having to go nuts, like Lucy and Ethel in the chocolate factory

Heh heh, so what’s this P-word you want to talk about, then? Heh heh.

The P-word is “productivity”.

Ugh, I thought you were going to talk about something fun, man. What the hell do you want to talk about productivity for?

Well, a business executive here in Winnipeg named Nicholas Hirst wrote a commentary in the Winnipeg Free Press on Thursday about the importance of raising workforce productivity here in Canada in order to maintain our high standard of living. Here’s part of what he wrote:

“Now the productivity problem is raising its ugly head again… What I do know is that if we don’t change, we will gradually slip down the list of the world’s richer nations. Brazil, India, China and Mexico are all snapping at our heels. Our economic recovery could make us complacent. That’s not a luxury we can afford.”

So you disagree with him then?

No — I think he raises an important point, that we have the high quality of life here in Canada that we have today because we’ve gradually become more and more productive over time, making uncomfortable but necessary changes from time to time that kept us from falling into a rut.

Nick Hirst can speak for himself, but I don’t want to want to work 60 to 70 hours per week like some people do in Japan, never mind in some Indian- or Chinese-style sweatshop.

You won’t have to. People look at Japan and think “ooh, they’re so much more productive than us lazy North Americans — just look at all the hours they work.” The truth of the matter is that they’re actually less productive than we are. In fact, Japan’s adeptness for time-wasting is, without a doubt, one of the reasons why they can’t seem to get their economy out of neutral.

For example , look at these stats I found on the OECD’s web site. The OECD is a fairly well respected organization that does a lot of research into why some countries are economically better off than others. The Japanese produce less value out of each hour they spend working than the Italians or the Spanish, which are hardly the world’s most efficient economies. Their neighbours in South Korea get less value out of every hour of work than the Portuguese, the Slovenians, the Slovakians, the New Zealanders or the Greeks.

As for India, China, Brazil and Mexico, I think things are going to get interesting for them but not in a good way. You’re looking at four countries that have a toxic mix of corruption, exploitation, massive inequality, rising expectations and top-down “shut up and do as you’re told” cultures. They’ve also got huge populations; and countries with huge populations always have a tougher time maintaining stability without the use of force than smaller countries. Eventually they are going to boil over. It’ll be so exciting it won’t even be funny.

What countries do you think we should keep an eye on?

I’d keep an eye on places like Chile and Uruguay, which are quietly moving ahead by cleaning up their governments and educating their population. They’re good examples of former Third World countries moving toward First World living standards.

What does that have to do with productivity?

Good question. Running a clean, honest and ethical government and public administration is one of the best things that a government can do to encourage productivity. Corruption is inherently wasteful, and is often used to suppress competition, which in turn means that companies have less incentive to find more efficient ways of doing things.

Education is also extremely important, because that has a direct effect on the kind of jobs that people can have a fair chance of getting. For example, it would be very difficult to start a high-tech firm in Nicaragua because there are very few people down there with the skills that you need to run that kind of firm, and because the amount of corruption makes it difficult to run a company down there — among other reasons.

But Canada isn’t Nicaragua. What do we have to do to get our productivity levels up like Nicholas Hirst says we should? Should we stay later at the office or skip our lunch breaks?

I wouldn’t recommend any of those things. Skipping lunch or hanging around the office until six-thirty isn’t going to do a thing for anybody’s productivity. Maybe that kind of dedication is welcome in some places, but it’s a bit of a sham. It robs people of their incentive to find more efficient ways of doing things, because they’re being rewarded for stretching work that could be done in eight hours out over nine and a half hours — which equals lower productivity, not higher.

We’ve got most of the fundamentals right in Canada — we don’t have one-third of our workforce being self-employed like they do in Greece (it’s more like nine percent here); our mix of agricultural, industrial, service sector and full-time/part-time workers is about right; and a large number of our young people go on to college and university. All of those things are good for our productivity.

We don’t do enough research and development in Canada, though. About two percent of a country’s economy should be dedicated to innovation — creating new technologies and better ways of doing things. We’re a bit low there, and too much of the research and development that takes place in Canada is concentrated in Ontario and Quebec, and to a lesser extent in Alberta and B.C. The amount of research and development that takes place in the other six provinces and three territories is not all that much.

What does research and development do for us?

It’s an important way of growing the economy. Among the countries listed in those OECD stats I referred to earlier, every dollar spent on research and development produces about $23 in economic growth on average, so it’s a very efficient  way of growing the economy. When that dollar is spent by a business, the economic returns go up to about $29, and when it’s spent by a post-secondary institution — which provides a local labour force that business and industry can draw upon — it skyrockets to over $70.

What else needs to be done?

The amount of research and development you can do depends on how skilled your workforce is. So, it’s very important to get kids interested in learning from an early age and, if they have an aptitude for things like science and technology, to steer them in that direction.

Definitely we need to get the high school dropout rate down. Ten years ago, we were the worst province in Canada for the percentage of 25 to 34 year olds who had never finished high school. Hopefully it’s improved since, but it’s still something that needs to be worked on.

People who drop out of high school not only face limited job hopes, but their children also have a higher risk of not completing their education and of being out of the running for good, interesting jobs. Not to mention that it’s very hard on the economy to have large numbers of people with low levels of disposable income who also depend more on social assistance programs and, at the same time, pay less tax to support those programs. So it’s in everyone’s interest to make sure everyone gets the best possible education.

Perhaps we could even use a bit more holiday time. The average Canadian worked 1,727 hours in 2008, but the optimum number of working hours for a country with our per capita GDP — our level of economic output per person — should be about 1,680 hours per year. It suggests that there’s some slack there that could be gotten rid of without harming the economy. Taking some of the slack out would also give us a small productivity boost by taking downtime (especially during the summer) out of the productivity calculations. If a legal minimum of four weeks annual vacation is good enough for Australia, which is in very good shape economically, then three weeks should be good enough for Canada.

Lucky Aussies. None of this stuff sounds very scary or even controversial, so why do you call productivity the “P-word”.

It conjures up a lot of negative associations, so the politicians don’t like to touch the subject. As soon as people hear phrases like “we need to improve productivity”, they think they’re going to have their lunch breaks taken away and all kinds of other nasty things that wouldn’t do anyone a darned bit of good.

You should get off your damn computer and go outside and enjoy the weekend.

I know, I know…